One of the things that has always surprised me about those who campaign against capitalism, those who would actually like to destroy it, is that so few of them seem to understand it well enough to see where the weak points are, quite how vulnerable it actually is to a well placed change in the law.

All you would have to do is remove the concept of limited liability and large scale capitalism becomes impossible. If all investors are wholly liable, not in a limited manner, but with all and any assets that they possess, for the actions of any and every investment that they make then the large scale co-ordination and co-operation which the system enables become impossible.

A subset of this is to remove the inability of litigants and others to pierce the corporate veil. Take, for example, my own situation. I ship scandium oxide to a company that makes parts for light bulbs. They then ship said parts on to GE, Phillips etc who make the actual light bulbs. But my risks are limited to two things. The quality of what I ship (if I mistakenly or deliberately ship radioactive material, for example) and the credit risk that my buyer will go bust before he pays me (which has actually happened, although later sorted).

But think what would happen if I were liable for the activities of all of those downline? That if Phillips, or GE, screwed up in some manner and I was liable? Not, even, in something to do with my products (which end up in most of a certain type of light bulb globally) but in any of their lines of business? Or, say, they fiddle their accounts (which GE was accused of doing some years ago, the smoothing of earnings) and I could be dragged into court as an accomplice?

You can see, can you not, that trade under such circumstances will be severely constrained. Making me at risk for the accounting practices of someone two, three or four steps down the production chain is not, at the least, going to encourage me in supplying people now, is it?

And yet that’s what seems to be at the crux of a case about to go to the US Supreme Court:

Under current law, any company that issues shares in the US is liable
for big class-action compensation pay-outs if they file false accounts
or mislead their shareholders.

But the Supreme Court has announced it will consider
whether any other third-party supplier, legal firm, accountant or bank
that works with the offending company could also face claims from
defrauded investors and shareholders.

That means a
British company could find itself dragged into court if a business
registered in the US to which it sold goods or services made misleading
financial statements – even if it knew nothing of the fraud.

Critics
say that if the Supreme Court rules in favour of the plaintiffs in the
case of Stoneridge v Scientific-Atlanta, it will open the door to
"abusive litigation" and that potential payouts are so huge that
companies would be forced to settle out of court, creating a huge
burden on business.

Such an expansion of potential liability would be the death knell for capitalism as it is currently constructed. Yes, I know, there are those who would welcome such a development but for the 99.9% of us who are not in fact raving lunatics we’ll just have to hope that the Supremes realize the danger and stamp down on this idea hard.